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6 days ago
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ARTICLE AD BOX
Summary
The deregulation of our oil sector shows how subsidies can be rolled back. Indian Railways needs similar action. Without a gradual withdrawal of fare freebies across all classes, its Operating Ratio will remain too high, its own accruals won’t fund capital investment and it’ll stay a fiscal burden.
The recent decision of Indian Railways (IR) to raise fares on all classes of travel, other than suburban rail, season passes and short-distance second-class ordinary, reflects a dilemma that has long dogged IR and underpinned its fare decisions: Should IR be run as a commercial enterprise, albeit state-owned, or as a departmental undertaking with social objectives placed above profit?
Historically, all governments, both before and after India’s 1991 embrace of market principles, have veered towards the latter view. Sadly, political calls have shaped almost everything about IR, including track expansion, stops along routes and, of course, train fares.
Fare revisions have always had a populist angle. They have mostly been confined to higher-priced classes, with suburban fares virtually untouched. The last time the latter were revised was in 2014, only to be partially rolled back in the face of protests.
The latest revision, effective 26 December and the second in 2025-26, is no exception. Not only are the hikes moderate, they are largely limited to dearer classes. Travel in AC coaches and non-AC coaches aboard mail and express trains is now costlier. But fares for suburban services and monthly season tickets, which cover the largest segment of passengers, remain the same.
Ordinary-class travel has also been spared—there is no hike in fares for up to 215km. Even where fares have been raised, the increase is nominal: just two paise per kilometre for higher classes in mail and express trains, and about one paise for ordinary-class travel beyond 215km. As estimated, IR will earn about ₹600 crore extra in 2025-26 from the revision. The additional revenue is welcome. But it is too little to count for much.
The Fifth Report of the Parliamentary Standing Committee on Railways (of August 2025) offers a telling commentary on IR’s poor finances. It points to how its Operating Ratio (OR)—or its gross working expenses as a percentage of its gross traffic earnings—has stayed above 98% since 2022-23.
Almost a rupee spent for every rupee earned leaves little by way of internal cash generation for capital investments, so a weak OR forces IR to depend on either budgetary support or borrowings, adding to its interest bill.
The panel’s report of December 2024 had suggested a better alignment of fares with operational costs. This must be done for all classes, including suburban travel. Consider how low our fares are. A seat on Vande Bharat from Delhi to Varanasi is about $21-40. In contrast, an Amtrak ticket from Washington DC to Boston, covering a slightly shorter distance, costs $200-$500.
Admittedly, IR must not be viewed only through the lens of profitability. It acts as the country’s lifeline, carrying around 20 million passengers daily, with this count going up to 30 million on festive occasions.
Beyond its role in transporting both freight and people at affordable rates, IR has also been a powerful force for national integration. Moreover, we cannot overlook its role in facilitating diverse economic activities.
It will also not be easy to wean a country long accustomed to subsidized rail travel off what are essentially ‘freebies.’ But it should be done. Let us not forget, even when its OR is under 100%, IR soaks up taxpayer funds at the cost of causes that may be more deserving of subsidies.
The oil sector offers a parallel; its gradual withdrawal of freebies could serve as a guide on how to proceed. Reforms might be difficult to sell politically, but IR needs to be financially sound.
English (US) ·